Paying for Health Care - Michael Porter...Paying for Health Care Intensive Seminar Harvard Business...

Paying for Health Care

Intensive SeminarHarvard Business School

January 16, 2019

Mary Witkowski, M.D., M.B.A. Fellow at Harvard Business SchoolHarry Wolberg, M.P.P. Research Associate at Harvard Business School

Copyright 2017 © Professor Michael E. Porter2

Move to Value-Based Payment Models

Capitation/Population Based Payments

Bundled Payment

Pay for care for a life

Pay for care for conditions(acute, chronic) and primary care segments

• Both approaches create positive incentives for reducing costs and separating payment from performing particular services

• Capitation at the hospital or system level can coexist with bundle payment at the condition level

Fee for Service

Global Budgets

Volume Value

Copyright 2017 © Professor Michael E. Porter

• A single risk-adjusted payment for the overall care for a life

Value-Based “Capitated” Payment Models

ACO Capitation Bundled Payment

• Responsible for all needed care in the broad covered population

• Accountable for population level quality metrics

• Providers take disease incidence risk, not just execution/outlier risk

• A single risk adjusted payment for the overall care for a condition or specific patient population

• Covers the full set of services needed over an acute care cycle, or a defined time period for chronic care or primary care

• Contingent on condition-specificoutcomes patient by patient− Including responsibility for avoidable

complications

• At risk for the execution on the bundle of care

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− Leads to focus on generic high cost areas across the population

− Avoid “leakage”

− Accurate risk adjustment is highly challenging

• Primary Care Physician led independent ACOs have better results

• Primary Care Bundle for a population segment


Primary Care: Capitation versus Bundled PaymentGlobal Capitation

$55 per person per month

Bundles for Primary Care

$25

$45

$105

$30 $35

$90

Healthy Adult

Chronic Mental Health Population

Healthy Pediatrics

Poor & Frail Elderly

Women's’ healthChinese-speaking community

>2 Severe Co-Morbidities

End of Life$140

$110

• Segmenting patients by primary and chronic care condition encourages multi-disciplinary practice groups to form and deliver better, more integrated and comprehensive care for that condition/sub-population.

• By measuring costs and outcomes for patients within each segment, we can offer a bundled, outcome-contingent, and risk-adjusted payment appropriate for that condition/sub-population.


Setting the Design of the Bundled Payment

6 Key Design Elements

1. Define the medical condition and cycle of care

2. Assign the accountable entity

3. Define the patient population

4. Set condition-specific outcomes

5. Define and manage risk

6. Determine the price

PayerProvider


Transparency

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• Almost all hospitals could tell you their parking prices, but almost none could provide the cost of a health care service

• Even when available, prices are worthless if they are unintelligible• “HC PTC CLOS PAT DUCT ART” for $42,596• “2-D ECHO TTE COMP NO CONTRST” for $2,283

• Outcomes measures are also often incomprehensible to patients

• There are currently 27 AHRQ Patient Safety Indicators including: • Decubitus ulcer; Iatrogenic pneumothorax

Informed consent – cannot happen without outcomes and cost impact to the patient• Barriers: health plans hold this information hostage, providers refuse

to measure outcomes, PCP who refer based on their friends


Adoption of Bundled Payments


Moving to Bundled PricingCommon Concerns

1. Providers will cherry pick, treating only younger, healthier patients while avoiding high risk patients

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• Bundles are risk-adjusted (e.g., Swedish spine bundle) which will mitigate cherry picking and encourage treatment of sicker patients

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2. Procedure based bundles will foster more procedures


Appropriate Care is Critical for Value

Two types of appropriate use questions:

1. Is this the correct diagnosis (over or under diagnosing)?

2. Is this the correct treatment given the patient’s condition?

There are three requirements that are necessary & sufficient for addressing appropriate use:

1. Broadening bundled payment definitions to encompass the decision and outcomes of alternative treatment paths

2. Utilizing evidence-based guidelines for Appropriate Use Criteria (AUC)

3. Outcome measurement (baseline and result)




2. Procedure based bundles will foster more procedures

3. Physicians are accountable for outcomes even when they do not controlother clinicians

Rotator Cuff Tear Bundle

Fosters collaboration among involved providers and drives integrated care


Management Control 101, The Controllability Principle: Responsibility and Accountability

Narrow Wide

FewResources

ManyResources

What Resources do I Control?

What Measures Am I Accountable For?

Few Measures

Many Measures


Bundled Payments will Stimulate Innovative, Entrepreneurial Behavior

Entrepreneurs pursue opportunities — internally and externally —without regard to the resources they currently control

Stevenson and Jarillo,Harvard Business School definition of Entrepreneurs

Narrow Wide

FewResources

ManyResources

Span of Control

Span of Accountability

Few Measures

Many Measures

The Entrepreneurial Gap



2. Procedure based bundles can lead the number of procedures to increase

3. Physicians are accountable for outcomes even when they do not control all aspects of the care cycle

4. Bundles are practical for surgery with a highly standardized care cycle, but not for medicine-based conditions, chronic conditions, and primary care

Moving to Bundled PricingOvercoming Obstacles


• Bundles can be developed for non-surgical care, chronic conditions, and primary care population segments (e.g., healthy adults, adults with Type 2 diabetes, frail elderly with multiple co-morbidities).

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Integrating Population and Condition Value Base Payments

Fee forService

Capitation/ Population

Based Payments

Condition Based

Bundled Payments

Pay for care for primarycare segments andconditions (acute,

chronic) with innovative partnership relationships

Both approaches create positive incentives for reducing costs and detaching payment from performing particular services

GlobalBudgets

Primary Care Bundle or ACO for

specific population

Condition Based

Bundled Payments

Capitation at the hospital or system level can coexist with bundle payment at the condition level

Shift to Value

Umbrella Model Partnership Model


Employer Sponsored Insurance represents over one-third of the U.S. Healthcare Market


Private Health Insurance – Traditional Business Model

Health Benefits PlanProviders

• Build networks• Negotiate prices• Claims Processing

• Payment processing• Utilization review & prior authorization• Set premiums• Manage Benefits (customer service, bill pay, etc.)

Employer

• Health care premiums for large employers are ~ 5% of total operating expenses.

• Employers receive little to no information about employee outcomes from their health benefits plans

• Experience rating => Employers ultimately bear the full risk for claims cost

Charge 15-20% (above claims) for “insurance,” administrative expenses and profits

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Premium Growth vs Wage & Inflation


Costs to Employers of Poor Health

• Absenteeismo Cost of wage of replacement workero Administrative cost of managing absent

worker & finding coverageo Morale of overworked employees who

have to “make up for those absent”o Quality impact of replacement /

temporary staff

• Presenteeismo Lack of productivityo Decreased quality

Can be >2x out-of-pocket costs

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2121© Michael Porter and Robert Kaplan, 2017

Thank you

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